11.22.2011

Child labor and empirical development

Sol and I each recently come across empirical papers on child labor which, at least at first glance, seem to arrive at rather different conclusions. The first, by Eric Edmonds and Norbert Schady, finds that cash transfers to poor women in Ecuador decrease child labor rates (h/t Chris Blattman):

Poor women with children in Ecuador were selected at random for a cash transfer equivalent to 7 percent of monthly expenditures. The transfer is greater than the increase in schooling costs at the end of primary school, but it is less than 20 percent of median child labor earnings in the labor market.
Poor families with children in school at the time of the award use the extra income to postpone the child’s entry into the labor force. Students in families induced to take-up the cash transfer by the experiment reduce their involvement in paid employment by 78 percent and unpaid economic activity inside their home by 32 percent.

The second is by Leah Nelson and shows that medium term credit for poor Thai families increases child labor rates:

This paper seeks to understand household business decisions in response to increased credit access in an environment with multiple market failures. A simple model
suggests that households at certain wealth thresholds might be able to overcome the fi xed costs of entering entrepreneurship when they have increased access to credit. In
the presence of labor market imperfections however, these same households may also
be more likely to employ child labor. I test these predictions using household and child level panel data from Thailand. To isolate the causal impacts of household borrowing, I exploit the exogenous timing and institutional features of the Million Baht Program, one of the largest government initiatives to increase household access to credit in the world. I find that, consistent with the model, expanded access to credit raises entry into entrepreneurship for households in specific wealth groups while simultaneously increasing the use of child labor in these households. The results suggest that through the avenue of encouraging entrepreneurial activity, expanding credit access may have unintended consequences for the supply of child labor.

So at least according to these two studies there's a fairly substantial difference between simply providing money and providing credit that requires a productive return over a short horizon. That may seem obvious ex-post, but I think it'd be hard to predict without actually running the empirics and seeing how they shake out. Or, put differently: ever more and better empirical work provides ever better and more nuanced policy implications.